Mi$$ing U.s. Wonders About Cache Of Cash That`s Out Of Circulation.

February 27, 1990|The New York Times

WASHINGTON -- Call it the mystery of the missing money.

Why is it, some people want to know, that about $1,000 worth of currency now circulates for each of the 240 million people in the United States when the government estimates that people and businesses hold the equivalent of $250 per capita?

What happened to the approximately $180 billion in paper money that has been printed through the years and seems to have disappeared?

No one really has the answer. But specialists think most of the money has moved abroad, some in drug transactions but some from other sources, such as money immigrants send back to their homeland and payment for imported goods.

Federal Reserve Chairman Alan Greenspan told Congress last year that ``perhaps more than half of U.S. currency is outside the United States.``

For most of the past 30 years, the growth of currency in circulation was predictable, correlated to the amount of personal spending and interest rates. As spending grew, the amount of currency in circulation also expanded.

But in late 1988, the Federal Reserve found that currency growth in recent years substantially outpaced increases in personal spending.

``It`s quite a mystery where all the cash is,`` said Gregory E. Elliehausen, a Federal Reserve Board analyst.

Another thing that is not clear is whether -- if large amounts of currency are moving abroad -- the effects are good or bad.

Some economists said blurring of currency borders tends to make the world economy less efficient and therefore all of us poorer.

But other economists contend that the availability of dollars in financially distressed countries, such as Argentina, where billions of dollars circulate as a second currency, probably allows transactions that would otherwise not occur and increases total wealth.

The explanation that the missing currency is moving overseas arises to some degree through the process of elimination.

Other reasons sometimes raised for the discrepancy between the $250 in currency held per capita and the $1,000 printed per capita do not seem to explain much.

Do merchants and other businesses have the missing currency?

It seems unlikely because most put cash to work earning interest, and they also are eager to limit cash in stores to the change-making minimum.

At most, business holdings match those of individuals, the Federal Reserve estimates, accounting for about $125 per capita.

But this leaves no accounting for about 75 percent of the U.S. currency that has been printed.

Many people attribute the currency growth to drug traffic and other illegal or underground activities.

Among other things, they cite a rapid increase in demand for high- denomination bills, which officials said do not exhibit the seasonal variations in demand of lesser-denomination notes.

One thing, though, is certain: The United States profits through seigniorage, the difference between what it costs a government to print or mint money and the money`s face value. Because it costs only about 2 1/2 cents to print a $1 bill, there is a Treasury profit of 97 1/2 cents if this bill winds up, for example, under a foreign mattress.

For larger denomination bills, the production costs are the same and the profit even greater.